An analysis of worker flows in transition economies presented at the Scottish Economic Society conference in Perth, 2015.

1. Can we really explain worker flows in transition economies?
Can we really explain worker flows in transition
economies?
Evidence from the Life in Transition Survey
Joanna Tyrowicz
Lucas van der Velde
GRAPE
Group for Research in APplied Economics
April 2015,
Scotish Economic Society, Perth

2. Can we really explain worker flows in transition economies?
Table of contents
1 introduction
2 Hypotheses
3 Data and methods
4 Results
5 Conclusions

3. Can we really explain worker flows in transition economies?
introduction
Introduction
Motivation
Analyses so far is highly selective - few countries, few periods
Lack of a solid, complete theoretical basis.
Transition theories better than universal labor market theories?
When is transition over?
Our goal: to understand better worker flows in transition economies
Advantage: new, comprehensive retrospective data: Life in
Transition Survey (EBRD)

4. Can we really explain worker flows in transition economies?
introduction
Very selective choice of countries analyzed
Table: Countries analysed by previous literature
Year N 89 90 91 92 93 94 95 96 97 98 99 00
Estonia 2
Russia 2
Ukraine 3
Bulgaria 1
Poland 3
Romania 1
Slovenia 2
Slovak 1
Note: Ticks indicate that the countryperiod was analysed in the literature. Papers were searched
for in the EconLit database with keywords: ‘reallocation’; ‘transition’ ‘job creation’ ‘job
destruction’

5. Can we really explain worker flows in transition economies?
introduction
Three stories of reallocation
Aghion and Blanchard (1994) → public to private flows.
Cabalero and Hammour (various papers) → Interindustry
reallocation.
Demographic transition.
Common limitations in applying this theories to data
1 Distinction between worker flows (gross) and job flows (net) is
blurred
2 Privatization vs. de novo firms might have different impact
3 What if a worker holds more than one job in the period?

6. Can we really explain worker flows in transition economies?
Hypotheses
Our statements to be tested
1 Flows during transition were generally not AB or CH
2 Demographic changes (youth entries and elderly exits) explain most
of the reallocation
3 AB explains unemployment better than CH in transition countries,
but they both poorly explain employment
4 Channels of mediation suggested by AB and CH do not seem to be
driving the processes, demographics do

7. Can we really explain worker flows in transition economies?
Data and methods
Data sources
Life in transition Survey - 27 transition countries, 18 years
Homogeneous survey compiled by the EBRD in 2006 and 2010.
Life history in the 2006 edition. Sample covers years from 1989 to
2006.
Limitations: missing variables (e.g. wages, firm size), identification
of flows (privatized vs de novo), recall and survival bias.
Other sources
ILO Stat and Fondazione: Wages and EPL
EBRD: Transition measures.
World Bank: GDP per capita.

8. Can we really explain worker flows in transition economies?
Data and methods
LiTS and other data sources
Country Year
Services Industry Private Services Industry Private
(LFS) (LFS) (SES) (LiTS) (LiTS) (LiTS)
Bulgaria
2000 51.8 39.6 57.2 36.0 48.7
2002 54.9 38.3 55.9 60.0 34.4 53.5
Estonia
1997 53.1 33.1 58.4 30.6 52.7
2002 56.0 32.9 91.8 59.8 30.9 62.2
Latvia
1998 47.4 30.1 67.1 23.6 51.2
2002 49.0 27.7 88.0 67.1 24.4 59.7
Poland
2000 46.1 40.1 59.6 34.6 50.0
2002 51.5 37.8 47.1 59.0 34.3 53.4
Romania
1997 48.4 22.8 54.1 39.7 44.2
2002 58.0 24.7 65.3 58.8 36.1 54.8
Slovakia
1998 50.2 29.2 62.6 30.1 39.7
2002 52.7 27.7 63.0 65.6 28.6 45.9
Note: Own calculation on the basis of data from LiTS, the EU-Labour Force Surveys (LFS) and
the Structure of Earnings Survey (SES).

9. Can we really explain worker flows in transition economies?
Data and methods
Definitions
AB: public ⇒ private sector (within the same industry)
CH: manufacturing ⇒ services (within the same sector)
ABCH: public manufacturing ⇒ private services
NONE: private service ⇒ public manufacturing
SAME: within sector and industry
EXIT: To retirement
ENTRY: Into employment

10. Can we really explain worker flows in transition economies?
Results
Our statements to be tested
1 Flows are generally not AB or CH
2 Demographic changes (new entries and early exits) explain most of
the reallocation
3 AB explains unemployment better than CH in transition countries,
but they both poorly explain employment
4 Channels of mediation suggested by AB and CH do not seem to be
driving the processes, demographics do

11. Can we really explain worker flows in transition economies?
Results
H1: which flows dominate? How much the models explain?
Figure: Relative importance of different flows (averages over time)
0 .2 .4 .6 .8 1
AZE
ARM
TJK
GEO
MKD
BIH
MNE
KGZ
ALB
MDA
SRB
SVK
BLR
HRV
UZB
SVN
POL
LTU
UKR
ROM
BGR
KAZ
CZE
EST
RUS
HUN
LVA
AB CH SAME ABCH
NONE To retirement From school

12. Can we really explain worker flows in transition economies?
Results
One speed of transition? + job-to-job flows dominate!
Figure: Evolution over time (averages over) countries0246
1990 1995 2000 2005
AB
CH
ABCH
SAME
NONE

13. Can we really explain worker flows in transition economies?
Results
Our statements to be tested
1 Flows are generally not AB or CH
2 Demographic changes (new entries and early exits) explain most of
the reallocation
3 AB explains unemployment better than CH in transition countries,
but they both poorly explain employment
4 Channels of mediation suggested by AB and CH do not seem to be
driving the processes, demographics do

14. Can we really explain worker flows in transition economies?
Results
H2 and H3: which flows explain employment?
Table: Movements to employment
N⇒ E U⇒ E E⇒ E
AB 0.968*** 0.868*** 0.917***
CH 0.649*** 0.662*** 0.594***
ABCH -0.623*** -0.592*** -0.531***
Same industry - Manufacturing 0.102*** 0.348*** 0.479***
Same sector - Public 0.883*** 0.882*** 0.916***
Same Sector - de novo 0.854*** 0.892***
Reincidence of unemployment -0.207*** -0.004***
Personal characteristics Yes Yes Yes
Country dummies Yes Yes Yes
Year dummies Yes Yes Yes
Number of id 15,131 9,968 13,107
R2
between 0.825 0.276 0.641
R2
within 0.834 0.314 0.641
Notes: Panel linear probability models (RE). Robust standard errors used but not reported.
Asterisks denote 1 % confidence levels

15. Can we really explain worker flows in transition economies?
Results
H3: which flows explain unemployment (better)?
Table: Link between unemployment rates and flows
AB CH SAME ABCH NONE EXIT ENTRY
flow2
0.057*** 0.089 0.009 0.220* 0.026 0.006 0.037*
flow -0.789*** -0.688 -0.533*** -1.067** -0.595* -0.060 -0.762***
N 486 486 486 486 486 486 486
R2
0.888 0.885 0.890 0.886 0.886 0.885 0.889
Notes: In all cases the dependent variable was detrended Unemployment Rate. The independent
variables are the total number of flows of each type in each country.

16. Can we really explain worker flows in transition economies?
Results
Our statements to be tested
1 Flows are generally not AB or CH
2 Demographic changes (new entries and early exits) explain most of
the reallocation
3 AB explains unemployment better than CH in transition countries,
but they both poorly explain employment
4 Channels of mediation suggested by AB and CH do not seem to be
driving the processes, demographics do

17. Can we really explain worker flows in transition economies?
Results
H4: do the channels of mediation work?
Table: Durations models
VARIABLES TOTAL CH AB (de novo)
Unemployment rate 8.850*** 9.035*** 8.435***
Unemployment rate 2
-12.305*** -18.396*** -16.145***
Entry 3.727*** 8.737*** 6.219***
Exit 2.950 0.676 7.472**
ULC dynamics -0.062 0.878 -0.601
Public 0.472*** 0.346** 2.917***
De novo 0.049 -0.001 0.486
Manufacturing 0.455*** 0.190 0.522***
Construction 0.457*** 0.190 0.834***
Services 0.527*** -0.283* 0.756***
High skill jobs -0.340*** -0.210 -0.143
Personal characteristics Yes Yes Yes
AIC 39362.182 6618.8377 8937.4545
BIC 39517.767 6774.4224 9093.0392
Notes: Estimates from a proportional hazard Cox model with country specific baseline hazard
ratios.

18. Can we really explain worker flows in transition economies?
Conclusions
Summarizing
1 AB and CH movements are the smallest part of transition
2 school-to-work transition very important for successful transformation
3 while some of the correlations predicted by the theories hold, but the
transmission mechanisms should be reconsidered

19. Can we really explain worker flows in transition economies?
Conclusions
Questions or suggestions?
Thank you for your attention!

20. Can we really explain worker flows in transition economies?
Conclusions
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